Sluggish sentiment weighs down property market

The local property market has come under the weight of sluggish buying sentiment and the outlook for the final quarter of this year is likely to remain sluggish given the lacklustre mood, unless some workable measures are taken to address the situation.

The convergence of a number of factors that include rising cost of living, weakening ringgit and oil prices, lack of confidence and uncertainties in the external economic front have sapped buying sentiment.

At this juncture, the mood to commit to buy big ticket items like a property will be thwarted, unless one has savings reserve or high disposable income to tap into.

To make matter worse, house prices have escalated by a number of folds over the past three to five years, rendering Malaysia’s housing market “seriously unaffordable”, as attested by a recent research by Khazanah Research Institute.

In the report released on Aug 24, average house prices in the country are found to be more than four times the median income of Malaysians, making them “seriously unaffordable”.

The report titled “Making Housing Affordable” revealed that Kuala Lumpur, with house prices 5.4 times higher than the median income in the capital city, and Penang at 5.2 times, are “severely unaffordable”.

According to Brian Koh, head of research and consultancy at DTZ Malaysia, the outlook for the property market now and in the final quarter of 2015 is grim, and developers are more cautious and are reviewing the risks of new launches.

“I think there will be a drop of 15% to 20% by volume with a negative outlook in the next six months,” Koh says, and he believes most developers are experiencing a 20% to 30% decline in take-up rate compared to two years ago.

The Goods and Services Tax (GST) that came into force on April 1 has contributed to the downcast sentiment in the property market as purchasing power has been dented by the higher prices of goods and services. Meanwhile, the falling crude oil and commodity prices also have flow through negative impact on household income, either directly or indirectly.

“I heard there are attrition rates for those employed in the oil and gas sector, and expatriates are in the first line of fire. Commodity prices affect mainly the property markets in semi urban areas in smaller towns, and in states such as Sabah and Sarawak where there are substantial smallholders,” Koh says.

National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong says the housing market is expected to remain weak for the rest of 2015 and also possibly even for the entire 2016, “unless there is some positive or uplifting news for the local and/or the global economy.”

“Consumer sentiments are very low at the moment given the decline of the local currency and global oil prices,’’ Chang observes.

He says with rising prices of goods and services while income remains the same, the disposable income of most households has been reduced.

As a result, consumers’ buying capacity and appetite would be lowered. This is further compounded by the current weak sentiments which would make many aspiring house buyers more cautious before committing their life-long investments to buy big ticket item like property.

“We expect the stronger developers will either hold on to further launches until the economy shows signs of recovery or launch in smaller phases so as not to over commit their financial resources. Developers always want to sell at a higher price compared to their earlier launch and it would be difficult to launch a big project with higher prices in a weak market,” Chang points out.

Knight Frank Malaysia managing director Sarkunan Subramaniam echoes Koh’s views, observing that falling crude oil and commodity prices that have contributed to the ringgit becoming the worst performing currency in Asia to date, has also negatively impacted the property market with lesser market activities and lower volume of transactions.

With the rising cost of living and lower purchasing power, prospective house buyers may defer their purchases and instead consider short- to medium-term rentals as they try to balance their finances.

Cash is King

Sarkunan says the current political and economic uncertainties coupled with a bearish stock market and the weak ringgit continue to weigh down on buying sentiments and confidence, with local buyers and investors having a cautious outlook and adopting a wait- and-see approach.

The slowing economy with the country’s GDP having moderated to 4.9% in the second quarter of this year compared with 5.6% in the first quarter has also dampened market sentiments, Sarkunan adds.

“Unless there is closure to the current political debacle, the property market will be sluggish and much the same between now and the final quarter of 2015 as consumer sentiments and business confidence levels continue to remain low,” Sarkunan concedes.

He expects speculators with limited holding power, particularly those who bought properties (mainly condominiums or apartments) under the Developer Interest Bearing Schemes (DIBS) a few years ago, may have to off load their newly completed or soon-to-be completed units to minimise or cut losses.

Savills Malaysia deputy managing director Paul Khong also has a cautious outlook on the property market, noting that the outlook for 2015 will be “rather flat” barring any unforeseen events in the local scene.

He says there is no clarity on the outlook for the final quarter of 2015, “and if all remains well, the market will continue to drag on slowly.”

“At this juncture, anything could go wrong. Take up rates will be slow as liquidity in the market is diminishing and bank loans are difficult to come by.

“With the cancellation of DIBS in the market in the last few years, property sales have slowed down and developers are now consciously changing their products to suit the big demand of the actual house owners or first-time house buyers.

“Many developers have gone back to basics to the landed segment and themed developments with strong emphasis on security that features gated and guarded and lifestyle projects. Location that is further is tolerable as long as it has direct access from an expressway to the project at affordable premium pricing. We are seeing this type of developments performing well in the Klang Valley,” Khong says.

Many later phases in various developments are being held back and most developers are quickly clearing stock in the existing phases. He expects to see some numbers of completions in the local market from earlier high-rise condo projects and this will add to the supply numbers. With many of these new completions, earlier purchasers will now be looking at resale and it would be a strong tenant’s and buyer’s market. The evergreen principle of “Cash is King” will now rule.

“Investors are more selective with their purchase and all the property investor clubs have since disappeared. Many are still reeling over their earlier purchases from these investor club schemes as the projects start to head for completion under current market conditions,” Khong observes.

Hall Chadwick Sdn Bhd chairman Kumar Tharmalingam is of the opinion that those who want to own their own property will buy no matter what the circumstances, but if necessary they will move to a cheaper area.

“As for investors who buy to sell for profit, they will find it difficult to get traction in this market with no support from banks. The positive side is that values will recover and the upside will reap benefits for the investors. As we are a middle-class economy those who already own their own homes will stay. Those who are heavily invested in investment real estate may have to rationalise as income will remain the same as costs rise.”

Kumar expects some properties to come on the market in the last quarter as distressed real estate.

“A lot will depend on interest rates. If Bank Negara ups interest to protect the outflow of funds we can expect more real estate pain for both the developers and investors,” he cautions. - By StarProperty